ABS numbers final nail in doomsayers’ coffin

The ABS reports that national house prices rose 0.5 per cent in the June quarter, in contrast to claims from the likes of Louis Christopher and Steve Keen that prices were still deflating.

And the large 1.1 per cent loss previously reported in the March quarter, which many doomsayers clung to as evidence of a bubble bursting, has been revised substantially upwards to just -0.1 per cent (ie. effectively no change at all).

Importantly, the ABS findings correlate with similarly positive results supplied by both RP Data-Rismark and APM, albeit that there are some timing differentials between the benchmarks. The ABS’s more optimistic analysis implies that the trough in the Aussie housing cycle was realised in the first quarter of 2012, subsequent to which home values started accreting again.

According to the ABS’s data, there was a dramatic compression in the year-on-year decline in national house prices. In the March quarter, national prices were reported to be down by 4.5 per cent. Yet by the end of the June quarter they were off only 2.1 per cent.

Some commentators had recently dismissed the RP Data-Rismark and APM findings in preference for relying on the “official” data from the ABS, notwithstanding the limitations associated with the latter (it excludes around one quarter of the capital city housing stock).

Controversial academic Steve Keen had tweeted that he wanted to let the ABS ‘data do the talking’ vis-à-vis his high-profile prediction that the rate of house price falls would ‘accelerate’. In a May 2012 article Dr Keen forecast:

“The odds are that the rate of decline will accelerate in the next year – since as Leith van Onselen pointed out…many baby boomers are relying on rising house prices to secure their retirements...The unwinding of their leveraged positions could push mortgage growth below zero, and of course accelerate the house price fall.”

It turns out that the rate of house price declines has not accelerated at all. In fact, it never did — the losses experienced over 2011 were strikingly monotonic.

According to the ABS’s June quarter analysis, house prices rose robustly in Sydney (1.4 per cent), and were up in Brisbane, Adelaide, Perth and Darwin (the latter by a stunning 5.1 per cent, which accords with RP Data-Rismark’s findings). In contrast, Melbourne house prices were off a tiny 0.4 per cent.

The ABS results add to the emerging belief that there is no urgent need for the RBA to cut rates at its meeting next week. Despite subtle pressure being applied on the central bank by conflicted industry and political leaders, the RBA is keen to avoid the adverse consequences of artificially low interest rates.

These include distorting savings decisions and the ensuing risk of speculative asset price appreciation.

The Australian Financial Review

BY Christopher Joye

Christopher Joye is a contributing editor to The Australian Financial Review. He is a leading economist, fund manager and policy adviser who has previously worked for Goldman Sachs and the RBA, and was a director of the Menzies Research Centre. He is currently a director of Smarter Money Investments.

BY Christopher Joye

Christopher Joye is a contributing editor to The Australian Financial Review. He is a leading economist, fund manager and policy adviser who has previously worked for Goldman Sachs and the RBA, and was a director of the Menzies Research Centre. He is currently a director of Smarter Money Investments.